Philippines GDP pegged to hit 6%

Domestic economy to drive growth further.

According to DBS, expectations are high that the robust pace of economic growth can be sustained and consensus is expecting 1Q13 GDP growth of 6.0% YoY, moderating from 6.8% in the preceding quarter. 

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We are looking for a slightly more conservative print of 5.8%. Notably,there have been some signs of softening in the high frequency data, especially those thattrack external goods demand.

Notably, industrial production and exportsfell by 2.5% YoY and 6.1% YoY respectively in 1Q. However,thisislikely to be offsetto an extent by continued strength in the services exportsector.

The domestic economy remainsthe brightspot with the currentlow inflation environmentshoring up consumer confidence and also allowing the central bank (BSP)to keep its policy rate low.

Moreover, vehicle salesrose by an average of 30.9% YoY, albeit with an upward skew due to base effects. We think that the domestic economy will continue to hold up well in the coming quarters.

BSP has been very aggressive in cutting the special deposit account(SDA) rate this year and hasrecently further restricted trust funds access to these accounts(effective in 2014).

Given that a significant proportion ofthe PHP 2trn placed in SDAs are affected, a rotation to other financial instruments including deposits is inevitable. This would facilitate credit growth and translate positively into the real economy in the coming quarters. For the whole year, we maintain that economic growth can reach 6.0%.